When a foreign company wants to do business in India, the two real choices for ongoing operations are: open a Branch Office (BO) — your foreign company itself operating in India under an RBI permission, or set up a Wholly Owned Subsidiary (WOS) — a new Indian company you own 100%. They're often discussed together but they are not interchangeable.
The core difference
A Branch Office is the foreign parent itself, operating in India. Profits earned in India are attributable to the foreign parent and taxed as 'non-resident' at 40% plus surcharge plus cess (effective ~43.7%). A WOS is a separate Indian company; profits are taxed as 'domestic company' at 22% plus surcharge plus cess (effective ~25.2%).
That ~18-point tax difference compounds fast. On ₹10 crore of Indian profit, BO pays ~₹4.37 crore in tax; WOS pays ~₹2.52 crore. The ₹1.85 crore savings each year covers a lot of setup cost.
Side-by-side comparison
| Attribute | Branch Office (BO) | Wholly Owned Subsidiary (WOS) |
|---|---|---|
| Legal status | Foreign company itself, operating in India | Separate Indian company owned 100% by foreign parent |
| Indian tax rate | 40% + surcharge + cess (~43.7%) | 22% + surcharge + cess (~25.2%) |
| Setup approval | RBI permission needed (3-6 months) | Automatic — incorporate via MCA (~12 days) |
| Permitted activities | Limited list: export-import, research, professional services, IT, etc. | Any lawful business |
| Hire local employees | Yes — under the foreign company's name | Yes — under the WOS |
| Open Indian bank account | Yes (single foreign-currency account permitted) | Yes (full INR account) |
| GST registration | Yes | Yes |
| Issue invoices in India | Yes (in foreign company's name) | Yes (in WOS's name) |
| Issue ESOPs from foreign parent | Yes, via foreign parent's plan | Yes — same |
| Acquisition target | Difficult — buyer acquires foreign parent's India operations, not a clean entity | Clean — buyer acquires the WOS |
| Annual filings to MCA | Form FC-3 / FC-4 — financial statements of foreign parent | AOC-4 / MGT-7 — Indian entity only |
| RBI compliance | Annual Activity Certificate to RBI | FC-GPR on capital infusion + annual FLA return |
Structure recommendation in one consultant call
Tell FastLegal's consultant: what your foreign parent does, what activities you plan in India, expected revenue / headcount, and timeline. We come back with WOS / BO / Project Office / Liaison recommendation, including the tax differential modelled on your projected India profits.
When a Branch Office actually makes sense
- You're a foreign bank, airline, shipping company or financial institution — these sectors typically operate via branches by sector regulation.
- You have a defined Indian contract / project of limited duration and don't want a separate Indian entity.
- You want the Indian operations to be legally and economically the foreign parent — e.g. when consolidating IP under a single legal entity is critical.
- You're doing pure research / development for your foreign parent (no Indian customers, no Indian revenue).
When a Wholly Owned Subsidiary makes sense (most cases)
- You're a tech / SaaS / IT services company — automatic FDI route, 22% tax rate.
- You want to acquire / be acquired cleanly.
- You expect Indian revenue and want full GST input credit reclamation.
- You want to issue Indian-side ESOPs (or just simpler ESOP administration via the WOS).
- You want access to STP, SEZ, GIFT City, R&D weighted deductions.
RBI approval for a Branch Office — the process
Setting up a BO requires RBI approval (FERA-era legacy), filed through the foreign company's AD bank using Form FNC. RBI takes 8-16 weeks typically. The application includes the foreign parent's incorporation documents, audited financials, project / business plan, and a declaration that the parent's business is not in a sensitive sector.
For comparison: a WOS is incorporated directly via MCA in 8-12 working days, no RBI approval required at setup (only FEMA reporting after share allotment). The 3-6 month time delta is a real reason most foreign tech companies pick WOS.
Frequently asked questions
Can we have both — a BO for one activity and a WOS for another?+
Yes, technically. Rarely done because of administrative overhead. Most foreign companies choose one structure.
What about a 'liaison office' — same as branch?+
Different. A Liaison Office (LO) cannot earn income in India — it can only represent the foreign parent (market research, customer support, communication). LOs are RBI-approved and non-commercial. Useful for testing the Indian market before committing to BO or WOS.
Can a BO be converted to a WOS later?+
Yes, with planning — typically a structured transfer of assets / employees from the BO to a newly incorporated WOS, with RBI / FEMA clearances. Most companies that start with BO eventually move to WOS for the tax + operational benefits.
Which is faster to shut down if needed?+
WOS — voluntary winding-up under the Companies Act takes 6-12 months. BO closure requires RBI approval and can take 12-18 months with full settlement of liabilities.
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